When people buy a home, they usually do so with a mortgage. A requirement of having a mortgage is that buyers the payments on time every month for the life of the loan. If they don’t, the home will eventually fall into foreclosure, and the bank will take control over it. The bank will eventually sell the real estate using a foreclosure sale. For buyers, foreclosure sales have some advantages and disadvantages.
Foreclosure sales usually come with a lower price than a regular sale. That’s because the bank simply wants to get rid of the home. Though it wants to maximize the price it can get, it will be happy to get its money back and get rid of the responsibility of having to take care of the house. Foreclosures often sell for at least 10 percent below market price and sometimes even more.
Chance to build quick equity
Because foreclosure sales are priced below market, it gives the buyers a chance to build equity quickly. By getting a bargain, the buyer automatically has equity in the home to begin with. Foreclosures often need some work and are priced to reflect that, so buyers willing to make the needed upgrades and repairs can build equity quickly.
Even though they are bargains, foreclosure sales can come with many problems. Banks do not want to put any money into the homes, so buyers should expect to buy properties as is and expect to have to put money into them. Foreclosures also can come with issues related to the previous owners. The bank may have a hard time getting those people out and may have to forcibly evict them, which can delay the sale. Banks also are wary of lending on foreclosures, so any one looking to buy one should make sure he or she has a large down payment and good credit. A better option is to buy a foreclosure with cash, which can help speed up the process.